Dodd-Frank Wall Street reform act created a independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.
Below are the Top 6 consumer protection measure that were written into the Dodd-Frank law with regards to home mortgages:
1) Ability to Repay: This act requires lenders to establish standards to measures a borrower’s ability to pay back the loan. The measure establishes a simple federal standard for all home loans and institutions must ensure that borrowers can repay the loans they are sold.
2) Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as “yield spread premiums” that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans.
3) Establishes Penalties for Irresponsible Lending: Lenders and mortgage brokers who don’t comply with new standards will be held accountable by consumers for as high as three-years of interest payments and damages plus attorney’s fees. Protects borrowers against foreclosure for violations of these standards.
4) Expands Consumer Protections for High-Cost Mortgages: Dodd-Frank law expands the protections available under federal rules on high-cost loans by lowering the interest rate and the points and fee triggers that are common to high cost loans.
5) Requires Additional Disclosures for Consumers on Mortgages: Lenders must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
6) Housing Counseling: Dodd-Frank law establishes an Office of Housing Counseling within HUD to boost home ownership and rental housing counseling.
There are tons of laws on the books that are intended to protect the consumers, but the none of these can replace an educated and informed consumer. That’s why we advise you to do as much research as possible before you sign the dotted line on your home mortgage cause you could be stuck with that loan for 30 years.
We are not sure if the Dodd-Frank law goes far enough to prevent the next real estate crash since the law has already been watered down in finance committees which are controlled by banking lobby.
What do you think?